First Actively-Managed Bond ETF Debuts In Canada
Tue, Jul 20, 7:11 AM ET, by Shishir Nigam, ActiveETFs | InFocus
On July 15th, Horizons AlphaPro, the only issuer providing actively-managed ETFs in Canada, launched the first Canadian actively-managed fixed income ETF, in the form of the Horizons AlphaPro Corporate Bond ETF (TSX: HAB). AlphaPro originally filed for this ETF and two other active products - a global dividend ETF and a balanced ETF - just about a month back with the Ontario Securities Commission. AlphaPro had six actively-managed ETFs that traded on the TSX prior to this launch.
The fund will invest in Canadian as well as US corporate debt in an effort to generate moderate capital growth and high current income. The portfolio will be managed by Montreal-based Natcan Investment Management, that currently has $25 billion in AUM. The corporate bond team at Natcan, comprising Marc-André Gaudreau and Roger Rouleau, believe that investment grade corporate bonds will yield 4% – 5% over the next 5 years, which is higher than what most dividend paying stocks currently offer. Natcan also highlights the diversification benefits that results from low correlations of corporate bonds versus stocks and other types fixed-income securities such as government and high-yield securities. The portfolio managers will alter the duration of the portfolio based on their interest rate projections.
Comparing their product offering to other passive ETFs tracking the DEX Corporate Universe, Ken McCord, President of AlphaPro, said that, "It's extremely difficult for a passively managed corporate bond ETF to replicate the returns of a corporate bond index, given the size and liquidity constraints of the corporate bond universe". HAB will hold between securities of 100-150 different corporate bond issuers and will have an expense ratio of 0.50% without any performance fee attached to it. The managers will also attempt to hedge any non-CAD$ currency exposure that results from holding US securities.
McCord believes that the AlphaPro Corporate Bond ETF will be able to attract investors from passive corporate bond ETFs as well as those invested in active fixed-income mutual funds. "Having a management team of the calibre of Natcan on the low-cost and flexible ETF platform creates a compelling alternative for both investors in high-fee fixed-income mutual funds and investors in corporate bond index ETFs, especially if those funds have historically failed to deliver benchmark returns," said McCord.
Disclosure: No positions in above-mentioned names.
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